Skins betting in Counter-Strike: Global Offensive has been a much debated topic in the last year, especially whether it constitutes illegal gambling. Multiple class-action lawsuits have been filed against Valve and skins betting sites alleging such, and gambling commissions worldwide have begun to investigate skins betting to determine whether sites operating in their jurisdictions are compliant with local law.
This week saw two important determinations in the skins betting landscape for the United States. On Tuesday, Oct. 4, 2016, McLeod v. Valve Corporation was dismissed from Federal Court. McLeod alleged that Valve violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), amongst a number of state law claims, by profiting off of and facilitating skins betting. For those unaware, RICO allows for individuals to sue, or otherwise seek prosecution of, ongoing criminal enterprises, like the mafia or other organized crime entities. The following day, the State of Washington Gambling Commission issued a press release regarding its stance on skins betting, and ordered Valve to cease its allowance of skins betting to persist. Both of these determinations are significant for the legal landscape of skins betting in the United States.
The McLeod Dismissal
United States District Judge John Coughenour, of the Western District of Washington, granted the defendant’s motion to dismiss in McLeod on the grounds that the plaintiff did not have standing to bring the RICO charge. In a RICO allegation, standing is a showing that a plaintiff’s property or business suffered a concrete financial loss, and not an injury to a valuable intangible property interest. However, as the Court in McLeod noted, gambling losses are not sufficient to justify RICO standing. To the dismay of the plaintiffs in McLeod, the RICO charge was the only basis for the Federal Court to hear the case.
In order to bring, and maintain, a lawsuit in Federal Court, the lawsuit must involve violations of the US Constitution or federal laws, cases between citizens of different states if the amount in controversy exceeds $75,000 (“Diversity Jurisdiction”), or bankruptcy, copyright, patent, or maritime law matters. By alleging that Valve violated the RICO Act, a group of federal laws, the lawsuit was able to be initiated in Federal Court.
Importantly, the RICO charge was the only substantive federal allegation in the case. Therefore, once the RICO charge was dismissed for failure to have standing to bring the claim, no questions of federal law remained in the lawsuit. The only other manner to stay in Federal Court would be to show diversity jurisdiction, but in a class action lawsuit such as McLeod, residents of Valve’s home state were included in the class. Therefore, diversity jurisdiction would not apply, as there is no separation of state-residency. As the Federal Court could no longer retain the case, known as a lack of jurisdiction, Judge Coughenour dismissed the lawsuit.
State of Washington Gambling Commission Steps In
On the heels of the lawsuit’s dismissal, the State of Washington Gambling commission issued a press release on Oct. 5, 2016 that notified Valve to “immediately stop allowing the transfer of virtual weapons known as ‘skins’ for gambling activities.” Citing its previous contact with Valve earlier this year to learn more about skins, the commission noted that skins have continued to be used as “consideration for illegal gambling activities,” specifically citing a report by Esports Betting Report, which indicated that CSGO Lounge facilitated approximately $1 billion in skins bets between Jan. 1 and Aug. 1 of this year. As the Commission has now determined that skins betting violates Washington State law, Valve has until Oct. 14, 2016 to respond and explain how it has complied with Washington’s gambling laws, or otherwise face civil or criminal action.
Dismissal is not necessarily the end of the McLeod lawsuit. The plaintiffs can seek an appeal of the ruling and can also pursue the many state law claims, which were not impacted upon in any way by this ruling, in State Court. However, by losing the RICO allegation, the potential damages that could be awarded following the case have substantially decreased. It is somewhat unlikely that we’ve seen the end of this litigation already, but the decrease in the potential damages awarded makes bringing the suit to State Court less appealing. The dismissal of the lawsuit, though not unexpected, also delays a judicial determination on the skins betting matter, forcing reliance upon state administrative body determinations.
The Washington State Gambling Commission has put its foot down with respect to Valve allowing skins to be used by third parties for gambling purposes. But, how will Valve respond? Certainly, there are some code-based measures that can presumably be established to limit the usage of skins for gambling purposes. Though unlikely, Valve can also take the nuclear approach and remove skins from the game as well. It will be interesting to see what measures Valve establishes to be compliant with the Commission’s determination, or, if they intend to challenge such determination.
Between the McLeod lawsuit and the Commission’s notice to Valve, Washington has become a state to watch with respect to these types of gambling matters. However, which, if any, states will follow Washington’s lead?
What do you think about the legal developments in skins gambling? Let us know by commenting below or tweeting us @GAMURScom.
Written by Roger R. Quiles, Esq. (@RogerQuiles)- Quiles is an attorney from New York City with a practice servicing the esports and video game industries. Quiles represents professional gamers, YouTubers, streamers, tournament producers, and the businesses that serve them. Quiles firmly believes that life’s problems can be solved with up, up, down, down, left, right, left, right, B, A, start.